Stop selling ULPs: IRDA

New Delhi: In the face of alleged violations in sale of universal life policies (ULPs), insurers would stop selling these products from Saturday till November 4 in accordance with a stiff direction by regulator IRDA.

ULPs are basically hybrid products, having the flexibility of unit linked products (ULIPs) and traditional plans.

"The Authority has received several complaints on the sale practices of the insurers regarding universal life products. After examining the complaints the Authority is satisfied that the ULPs need a better regulatory framework for protecting policyholders' interest.

"In order to ensure that the policyholders do not lock themselves in current ULPs, it is hereby ordered that the

insurers shall not sell any ULPs from the close of business on October 22, 2010," IRDA said in a circular to all life insurance companies on Thursday.

The Insurance Regulatory Development Authority (IRDA) said the guidelines for variable insurance products (VIPs) would govern the ULPs and said that it...would come up with a final guideline on the same on or before November 4.

At present four companies Max New York Life, Aviva Life, Bharti Axa Life and Reliance Life offer these plans.

The insurance industry reaction was mixed on the said suspension, with some saying that the overnight ban would affect business, while others saying it would bring in clarity.

"The norm should be different for different companies. It should have been a direction for companies which have violated norms. Putting a ban overnight would disrupt the business functioning," Max New York Life MD and CEO Rajesh Sud said.

For protecting policyholders' interest, IRDA also came up with guidelines for ULPs and sought life insurers views on the same till October 31.

"ULPs are still in evolving stage in India. So far there has been no guidelines governing the ULPs. The IRDA move would

bring in clarity in the structure of ULPs," Bharti AXA...Life VP Product & Pricing Rajeev Kumar said.

As per the draft guideline, IRDA has proposed a minimum life cover of Rs 50,000 or 10 times the annual premium for a customer below 45 years of age.

For customers above 45 years, a minimum cover seven times the annual premium has been proposed.

According to IRDA, the minimum policy term for such products should be five years and the lock-in period of three years. These products are to be linked to the savings bank account of a customer, IRDA said.

Investments and insurance should be kept separate

I always tell investors that products should be evaluated on their effectiveness in achieving our important goals. Their multiple features should be examined with this simple perspective.

All our financial goals have two main themes: protection and returns. Term insurance is the only pure protection product while insurance products like endowment, whole life, money back or Ulips are a combination of insurance/ protection and investment/ returns. Essentially, we have to determine whether the convenience of a multi benefit product justifies its additional costs.

For a 40-year old, Rs 1 lakh of pure protection could be bought for Rs 350. If he buys a Ulip with Rs 1 lakh annual premium and a Rs 10-lakh insurance cover, we know that Rs 3,500 is being utilised for protection. Anything less than Rs 96,500 invested to buy units is the cost which insurance companies levy and give it varied nomenclature of administration, allocation, commi- ssion...or marketing. The same benefits can be replicated by buying term insurance separately for Rs 3,500 and units of a good mutual fund, where the entire Rs 96,500 is utilised without any deduction, since entry load is zero.

Old Ulips had very high charges, especially in the first 3 years, ranging between 20-30%. Effectively, only Rs 70,000 was invested out of Rs 1,00,000 in the first 3 years. This has severe negative consequences because of the immense time value of money and compounding, and insurance policies are long term. Rs 10,000 invested every month for 20 years in the growing Indian economy should count for Rs 1 crore. Whether the investor achieves his goals or not, he contributes significantly to the Ulip seller’s comfortable retirement. Even the argument that insurance plans have less fund management charges and therefore, recovery in the long term does not hold water since NAVs reflect these...costs and Ulips, in general, have not demonstrated NAVs higher than comparable mutual funds.

Irda’s recent amendments include increasing the lock-in period to five years from the current three years. Additionally, charges are reduced and evenly distributed, resulting in lower commissions for agents —around 5% in the first year and 2% subsequently, instead of 15-30% earlier. Discontinuance charges are less with an absolute ceiling of Rs 6,000. Besides, minimum insurance cover is higher.

The impact of these changes is good for the investor. They focus on protection and the long-term nature of the product. Earlier, Ulips were being sold as short-term investment products with an insurance veil and taxation benefits. Costs are less and their structure is standardised, making the comparison of products easier. Also, exits are cheaper, though lock-in periods are longer.

10 yrs biz track for insurers to launch IPOs

10 yrs biz track for insurers to launch इपोस

New Delhi: Insurance regulator IRDA is not in favour of allowing initial public offers (IPOs) by life insurers who have been in business for less than ten years, a condition holding up the IPO guidelines for the sector.

The companies who have been operational for less than ten years, but want to come out with IPOs, have been lobbying hard against this rider, but have not succeeded in their efforts so far. Industry sources said that this is among the key issues delaying the IPO guidelines.

"Insurers can come out with IPO only after completion of 10 years of operations," a senior official with Insurance Regulatory and Development Authority (IRDA) said.

As per the Insurance Act, promoters having a 26 per cent stake can offload equity after 10 years of operation.

However, the legislation empowers the government to reduce the mandatory waiting period before tapping the capital market.

Many companies want the norm to be relaxed so...

ING Life launches new ULIP

ING Life launches new उलिप

Kochi: ING Life Insurance launched a new Unit Linked Insurance Product-ING Prospering Life which meets wealth accumulation and protection needs of the customers, a top official today said.

The new ULIP comes with a host of customer benefits, including 5 fund options to choose from, Automatic Asset allocation and unlimited switches with partial withdrawls free of chrage, T K Uthappa, Director- Sales ING Life Insurance said.

The product offers an annualised premium ranging between rs 48,000 and rs 96,000 and is competitively priced against other long term investment options, he said. The sum assured is an amount 10 times the annual premium at inception for those below the age of 45 and 7 times the annual premium at inception for those above the age of 45.

The minimum top up premium is rs 5000. During April-September last year, the company sold 1.37 lakh policies while it was only 1.12 lakh policies during the same...period this year. Admitting an industry 'degrwoth',

he hoped that by march 2011 they would succeed in improving on this by at least 50 per cent.

Kerala accounts for only 5 per cent of its business of 60 per cent from South India. The company was looking at at 20-25 per cent growth in business from south India and 15 per cent from Kerala thsi fiscal,

Reliance Life launches Classic Ulip plan

New Delhi: Anil Ambani Group company Reliance Life Insurance on Wednesday launched a unit-linked insurance plan that will provide policyholders the benefits of regular savings with enhanced protection and market-linked returns.

The new unit-linked plan (Ulip), Reliance Life Insurance Classic Plan, would provide protection to policyholders in the age group of 7-65 years.

"The unique proposition of Reliance Life Insurance Classic Plan is that it offers flexibility and triple benefit of savings, insurance and investment - all in one single plan," Reliance Life said in a statement.

The plan also offers liquidity through partial withdrawals and loans, top-up payment option and rider benefits to enhance protection cover, it added.

"The new Ulip offers multiple benefits and protection -- from helping policyholders plan their finances wisely at different stages of life, to providing risk cover on loss of life," Reliance Life Executive Director and President Malay Ghosh said.

Under the plan, the beneficiary would get double the..base sum assured plus total fund value in the event of accidental death, the statement added.

The plan is available under two minimum payment options -- Regular option and the Single Premium option.

Under the Regular Option, the customers would have to pay Rs 20,000 annually -- which can also be paid in monthly, quarterly and half yearly options.

For the Single Premium option, customers will have to pay a minimum of Rs 50,000 only once at the inception during the 15-year policy tenure.

"The flexibility offered to policyholders by the company allows liquidity through partial withdrawals after fifth policy anniversary, loan after the completion of second policy year and top-up option to increase regular savings," Ghosh added.

This is the second Ulip scheme launched by Reliance Life after the insurance regulator Insurance Regulatory and Development Authority came out with its revised guidelines on Ulips a few months ago.

Private insurance works

Private insurance works

• Competition works. Auto insurance is purchased competitively in almost every jurisdiction in North America. Most people believe in the free market for nearly all the products they buy. In fact, governments have deregulated several former public monopolies over the last number of years, and consumers have won every time. Thanks to competition and choice, consumers now enjoy lower long-distance telephone rates and more choice and real competition in cable television services.
• Insurance rates reflect true cost. Premiums in a competitive environment reflect the real cost of insuring a driver. Auto insurance premiums are set based on a host of factors that affect the frequency and cost of claims. The likelihood of being involved in a collision or having a vehicle stolen, geography, type and age of a vehicle, insurance claims records, other drivers in the household who use the vehicle, driver age, driving records, driver gender and traffic congestion all affect risk and claims. It's the cost of claims, more than anything else, that determines the premium level for consumers.

  Unlike private insurers, government-run auto insurers have been able to increase rates without ever having to apply for a rate increase. Government insurers have increased the number of claims paid directly by the customer by increasing deductibles, and have moved more drivers into higher-priced territories by making changes to insurance rating territories.

• Employment. Private auto insurance systems provide vital injections of investments, jobs and taxes into regional economies. The private insurance industry in Canada employs almost 100,000 people, either directly or through its support of a broker workforce.

  The argument that is always presented by those promoting government-run monopolies is that the monopoly provides often much-needed jobs. This is simply not true; in fact, jobs and investments increase when more companies compete for business.